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The govern(mentality) of financial reporting reform: lessons from UK central government

Journal: Public Management Review

Date: 2024

Author: Elaine Stewart, Ciaran Connolly

Abstract:
Drawing on the concept of governmentality and Dean’s (2010) analytics of government, this paper examines how public sector financial reporting reform has shaped forms of power, rationales and practices in United Kingdom (UK) central government. Informed by semi-structured interviews with key actors involved in the implementation, oversight and day-to-day application of the financial reporting regimes, the results illustrate accounting’s constitutive power and the challenges in determining the accounting boundary. Given ongoing public sector accounting reform globally, learning from the UK experience, where such practices have been commonplace for many years, can help identify what is (or not) effective and under what circumstances.

Link: Google Scholar

Background and Context

Research Focus

This study examines how public sector financial reporting reforms have shaped power dynamics in UK central government over a 25-year period.

Theoretical Framework

The research draws on Foucault's concept of governmentality to understand how accounting functions as a technology of power in public administration.

Methodology

Semi-structured interviews were conducted with 23 participants including department officials, oversight bodies, and academic advisers involved in UK financial reporting reforms.

Evolution of Financial Reporting Reform in UK Central Government

RAB 1993 WGA 1998 IFRS 2007 CLOS 2011 Expanding Accounting Boundary
  • The UK implemented four major accounting reforms over 25 years, each building upon previous reforms.
  • Resource Accounting and Budgeting (RAB) in 1993 introduced accruals accounting to replace cash accounting.
  • Whole of Government Accounts (WGA) and International Financial Reporting Standards (IFRS) expanded accounting practices beyond traditional boundaries.
  • Clear Line of Sight (CLOS) in 2011 aligned budget, estimates and financial reporting to improve transparency.

Dual Rationalization: Official vs. Hidden Motives Behind Reforms

Stated vs. Actual Rationales for Reform Stated Rationale Better Information Enhanced Accountability Improved Decision-Making Private Sector Alignment Hidden Rationale Widen Governable Domain Increase Power & Control Enhance Central Authority Symbolic Reform Legitimacy
  • Publicly, reforms were promoted as improving transparency, accountability, and decision-making in government finances.
  • Research reveals deeper motives of expanding power, increasing central control, and widening the governable domain.
  • The gap between stated benefits and underlying power dynamics illuminates how accounting serves as a technology of government.

Technologies and Techniques Used to Operationalize Reforms

Accounting Reform FReM Guidance External Audit IFRS Standards Oversight Bodies
  • The Financial Reporting Manual (FReM) was the primary tool for implementing accrual accounting reforms.
  • International Financial Reporting Standards (IFRS) enabled private sector accounting to territorialize public sector accounting.
  • External audit and oversight bodies played key roles in legitimizing and enforcing the reforms.
  • These mechanisms collectively served to create a common language facilitating comparison and evaluation across sectors.

CLOS Reform Expanded Accounting Boundary Enhancing Parliamentary Control

Pre-CLOS Department Some ALBs Post-CLOS Department All ALBs Foundation Trusts
  • CLOS significantly expanded the accounting boundary to include entities previously outside central government oversight.
  • Foundation trusts went from approximately 150 to 400 bodies under government oversight through CLOS.
  • The expanded boundary clarified departmental responsibilities and improved communication between departments and arm's-length bodies.
  • CLOS addressed misalignment between budgets, estimates, and accounts that had hindered effective financial management.

Stakeholder Perspectives: Divergent Views on WGA's Value and Purpose

Stakeholder Perspectives on WGA Value Departments "Unclear purpose" "One-way flow" "Takes too long" "Little department value" Most negative Oversight Bodies "Parliament using it" "Highlights key issues" "Pension liabilities visible" "Qualifications as catalyst" Most positive Academics "Uncertain purpose" "Costs borne by depts" "For central government" "Qualified audit opinions" Critical but balanced
  • Government departments were most critical of WGA, seeing little benefit relative to their reporting burden.
  • Oversight bodies valued WGA for highlighting long-term liabilities like pensions and clinical negligence costs.
  • These divergent perspectives reveal how the same accounting technology serves different purposes for different stakeholders.

Contribution and Implications

  • Accounting reforms reveal power dynamics, with the line between policy discourse and outcomes often becoming blurred.
  • Implementing reforms without evaluating previous ones can result in gaps between reformers' ambitions and policy outcomes.
  • Countries adopting accounting reforms should align professional accounting needs with public sector requirements and priorities.
  • Despite resistance and limitations, specialist accounting techniques become difficult to challenge once implemented in government.
  • The process of preparing accruals accounts has merit, regardless of whether the information directly influences decision-making.

Contribution and Implications

  • Accounting reforms persist despite criticism because of their symbolic power and professional legitimacy within governance structures.
  • Counter-conducts like resistance to WGA can ultimately improve governance by highlighting flaws in existing systems.
  • Countries implementing similar reforms should align professional accounting standards with public sector-specific needs and contexts.
  • The identity of accountants shapes reform outcomes, with private sector accountants potentially treating public accounting as technical.
  • Continued support for reforms despite limited evidence of benefits demonstrates accounting's constitutive power in governance.

Data Sources

  • Visualizations are based on qualitative analysis of interview data from 23 participants as described on page 1142.
  • The timeline in Visualization 1 is based on Figure 1 from page 1136 of the article.
  • Visualization 2 interprets the problematization concept discussed on pages 1139-1140 using Dean's analytics framework.
  • Visualization 3 reflects the techniques and practices analytic from pages 1144-1146 of the article.
  • Visualizations 4 and 5 are derived from interview findings regarding CLOS and WGA discussed on pages 1144-1149.